Some Fear an Economic Cold War as Trump and Xi Meet at G-20

The stakes for President Donald Trump’s Saturday meeting with his Chinese counterpart Xi Jinping seem like they couldn’t be higher as the world’s two biggest economies argue over escalating tariffs, how to handle North Korea and saber rattling in the South China Sea.

But as in the meetups between U.S. presidents and Soviet leaders during the Cold War, analysts say the most likely results of the dinner meeting will be a vague promise to work together followed by further tension. The result may be something of an economic Cold War between the U.S. and China.

Simply put, the trade issues at hand simply too thorny for Trump and Xi to reach a Grand Bargain when they sit down for dinner on the sidelines of the G20 summit in Buenos Aires. Trump has demanded that China end some trade policies like its requirement that foreign companies provide technology knowhow to Chinese firms as a condition for doing business and its state-support for certain industries.

While those policies have been widely condemned by the international community, they cut to the core of the vision of Chinese leadership for the country’s future development, and China is unlikely to give in to those demands or even to meet the U.S. halfway.

“The U.S. has made a lot of pretty strong demands from China,” says David Dollar, a senior fellow at the Brookings Institution. “China is certainly not going to meet all of those.”

Even Trump himself seemed to be wary earlier this week, telling the Wall Street Journal in an interview that it was “highly unlikely” he would halt a spike in tariff rates scheduled for the new year. “The only deal would be, China has to open up their country to competition from the United States,” Trump said.

Some in the White House still insist that an agreement remains on the table even while acknowledging that significant barriers to such a deal lurk just below the surface. Larry Kudlow, Trump’s chief economic adviser, told reporters on Tuesday that “there’s a good possibility that a deal can be made,” but then proceeded to recite a long list of “caveats.”

“Certain conditions have to be met,” he said. “Issues of intellectual property theft must be solved. Forced technology transfers must be solve. Significant tariffs and non-tariff barriers must be solved. Issues of ownership have to be solved.”

But Trump and Xi may take another route and agree to an interim deal that will calm hostilities to allow lower-level negotiators to work out thorny policy issues. Trump would likely brand such an agreement as a big breakthrough, much like he did after striking a similar pact with the European Union over the summer. In that deal, Trump promised to hold off on auto tariffs while the EU promised to look into buying more U.S. goods.

Reaching such a deal with China would likely take months, if it can be achieved at all given the scale of the disagreement. China has launched a broad program known as Made in China 2025 that is designed to make the country a “manufacturing superpower” that is 70% self-sufficient in certain high-tech manufacturing industries. To do that, it has engaged in a wide variety of practices labeled as unfair both by the U.S. and its allies. The program is central to the country’s long-term planning, and tariffs are unlikely to force its hand in any substantial way.

The Administration has delivered vastly different messages about how much it may compromise depending on the messenger, but at the very top officials seem unyielding. In recent months, Trump has dispatched Vice President Mike Pence to deliver a hardline message that has signaled a potentially intractable dispute.

“Our message to China’s rulers is this: This President will not back down,” he said at a closely watched speech on China in October.

Practically speaking, it’s unclear whether an interim agreement would actually allow the countries to address their fundamental issues with each other. Still, a pause in trade hostilities would be a welcome development. This week Trump suggested he was considering tariffs on electric vehicles and reiterated a threat to enact new tariffs on an additional $267 billion of Chinese goods, potentially including iPhones.

With those threats in mind, even a promise of no further escalation from both parties could be considered a victory and would likely help calm jittery markets that were rattled by the tit-for-tat trade escalation earlier this year. But a pause isn’t necessarily a breakthrough, and one or both sides will likely need to make serious concessions to avoid a long and drawn out battle between the two powers.

Such a battle could hit both the U.S. and China hard with disruptions to supply chains and higher costs for consumers. The China hawks in the Trump Administration believe that the U.S. can sustain the damage given the strength of the U.S. economy while pointing to China’s slowing economic growth. But the difference in the two country’s political systems makes it difficult to predict who would win an economic Cold War. Electoral pressure may push U.S. political leadership to compromise while Chinese officials can count on long-time tenure, and in Xi’s case lifetime tenure.

As with the other Cold War, the result may be a fight that outlasts any single president’s time in office.

Leave a Reply

Your email address will not be published. Required fields are marked *